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Research
Federal Bank - 4QFY2012 Result Update - Angel Broking
Posted On : 2012-05-17 11:22:28( TIMEZONE : IST )
For 4QFY2012, Federal Bank reported 38.4% yoy (up 17.7% qoq) growth in its net profit to Rs.238cr, which was in-line with our estimates. Although operating income growth was moderate at 10.7% yoy, lower provisioning expenses (decline of 80.5% yoy) on account of higher recoveries and upgradations boosted the bottom line. We recommend Neutral on the stock.
Asset quality improves sequentially: For FY2012, the bank's advances and deposits grew by 18.2% yoy and 13.8% yoy, respectively. On a qoq basis, advances and deposits grew by 13.7% and 4.7%, respectively. On the advances front, gold loans continued to witness robust traction, growing by over Rs.600cr during 4QFY2012, taking the overall proportion of gold loans (Rs.3,600cr as of 3QFY2012) to 9.5% of the loan book. The bank's NIM declined by 38bp qoq on account of overall higher cost of deposits (de-regulation of NRE term deposits) and lower yield on advances (down 39bp qoq) due to FITL reversals during the quarter. During 4QFY2012, growth in core fee income remained muted; however, treasury income witnessed healthy traction, leading to 16.4% qoq growth in non-interest income. The bank's slippages for 4QFY2012 declined by 22.7% on a sequential basis to Rs.269cr (annualized slippage ratio of 3.4%), of which ~Rs.130cr were on account of slippages from corporate accounts (Rs.87cr due to classification of Kingfisher as NPA). The remaining slippages were from the SME and retail segments. The bank restructured accounts worth Rs.920cr in 4QFY2012 (majorly due to Air India and Rajasthan SEB), taking the outstanding restructured book to Rs.2,036cr.
Outlook and valuation: The bank's valuations at 1.0x FY2014 ABV are higher than the 0.5-0.7x range at which mid-size PSU banks with similar KPIs are trading. While in the medium term, we expect a gradual increase in the bank's leverage to lead to higher RoEs, higher valuations coupled with the diminished advantage of low-cost NRE deposits are likely to limit upside from current levels. Hence, we recommend a Neutral rating on the stock.